Did Bill Dudley Just Unveil The Fed's Real Taper "Scapegoat" Plan?

That the Fed has a problem is increasingly well known - despite the blather from the mainstream media that QE monetization can continue ad infinitum. Their problem, of course, is running out of government-provided liabilities to monetize (as deficits shrink and their ownership of the entire Treasury complex surges). They face other problems (as we have noted before) but the admission that they are boxed in would have major ramifications in the market's faith. So, how does the Fed, faced with the knowledge that they have created asset bubbles, broken the bond market, and are boxed in by their own excess still meet the market's undying desire to keep the flow going? Bill Dudley just, perhaps inadvertently, dropped a hint of the next 'market/scapegoat' for monetization - Student loans.

Bear in mind that the "taper" is all about economic cover for a forced move the Fed has to make, because:

3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time...

Thank you Uncle Sam for making yet another generation of indentured servants who are studying geology on the taxpayers' dime, who will never get a job, who are up to their neck in debt, but at least can afford a Chevy Silverado.

as the NY Fed disclosed moments ago, federal student loans officially crossed the $1 trillion level for the first time ever. Notably: the quarterly student loan balance has increased every quarter without fail for the past 10 years!

It would appear Mr. Dudley is getting the joke that a younger generation burdened with debt is a problem...

Hopefully this highlights just how acute the severity of the student loan bubble is when stripped of all spin and mitigating rhetoric.

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So where does that leave us?

1. The Fed knows it needs to taper at some point - no matter what the rhetoric, unless the Fed admits the US is still in crisis mode, it risks losing its credibilit entirely (and control of the bond market) if it does not taper.

2. Smaller deficits mean the Fed is boxed in with its ability to monetize Treasuries and keep the "flow" flowing...

How to escape that box?

1. Identify a bubble (but it cannot be an asset-bubble because if it were then the collateral chains and rehypothecation would contagiously collapse every other asset class).

2. Scapegoat that 'Bubble' as potentially a headwind for growth that needs to helped by government intervention.

3. "Help" the people by monetizing that bubble (and implicitly keeping the "flow" flowing)

The Answer - as Bill Dudley just opined - is Student Loans.

1. A perfect bubble (forget about who created it) that needs to be popped by a responsible overseer

The Bottom Line - Bill Dudley just floated a strawman that the Fed will taper Treasuries and the scapegoat will be Student Loans - which they will directly monetize to save us all from ourselves (and the problem they created).

(as an addenda - we warn of the unintended consequence of this action - should they do it - that will merely encourage banks to securitize student loans and flip them to the government en masse, creating demand for moar student loans and enabling supply - ths growing the bubble ever larger).

Treasury debt and WTF is going on???
Is it in the self interest of "foreign" nations to buy record % and total US Treasury debt positions? In a currency that is clearly being monetized (diluted)? If not, why do this?
There are some options around the $5 T in foreign ownership:
option 1) - foreigners don't own some or all of the debt
the debt is simply ascribed to foreign nations by the US financial stewards that do hold them*...but then where does the "money" they use to buy them with come from? Who really owns them? The ESF or god knows what machinations? This would seem to imply that the US is in part or entirely monetizing it's debt via the "foreign" category of debt holders...
* The data in this table (TIC) are collected primarily from U.S.-based custodians. Since U.S. securities held in overseas custody accounts may not be attributed to the actual owners, the data may not provide a precise accounting of individual country ownership of Treasury securities (see TIC FAQ #7 at: http://www.treasury.gov/resourcecenter/datachartcenter/tic/Pages/ticfaq1...).option 2) - foreigners do own the debt
US runs a trade deficit of $500 B and budget deficit of $700 B this year...means an excess of $500 B that must be recycled into something and $700 B new debt that must be created to pay (on the credit card) for what we do but don't want to tax ourselves for.
Discrepancy in these in '08 when our trade deficit collapsed to $300 B and budget deficit inflated up to $1.7 T (lots of debt to be purchased and little excess dollars to buy it up) but this is when "foreigners" took on the greatest amount of Treasury debt. How? Currency swaps? QE? God knows but (according to TIC) they increased their ownership from less than $900 B in '00 to $2.2 T in '08 to in excess of $5 T in '13.
Coupla ?'s if foreigners do own 50%+ of US med/long term debt...
-Wouldn't they be most hurt by a tapering?
-"Logically", wouldn't it be in foreigners self interest to sell Treasury's before a tapering to avoid taking these losses? If they did sell into a Fed tapering...well, what would that look like absent the Fed's QE???
-Given domestic ownership of Treasury's has remained @ $2.5 T since '00 (ex Fed), at what rate would institutional money need to sell off assets to buy up new and rollover debt...and at what rates to replace QE and Foreign $
s?...and at what impact on equity or property markets?
-Wouldn't any interest rate spike send most interest payments to foreigners (external of the US further economy) depressing money velocity/ money multipliers and worsening budge deficits?
None of this really makes any sense...anybody have any thoughts that do make sense???

Ham-bone don't sweat the treasury debt. Foreigners are not dumping and the fed is not concerned that it has to taper. Maybe muni's become the next thing monetized, maybe student loans. Maybe both. But the fed will continue what they are doing.

Fonz, the Fed is underwriting the current massive bond bubble from corp debt through to rental cash bonds now (kid you not!). This is the academics, or geniuses, what ever you want to call them solution to maintain a liquidly load that Wall Street manages. And Wall Street is just to smart and on the ball to make a meal of it all (sarc). The Fed won't taper anything, if they do the bond bubble could blow up. The Fed is playing their market 'we may-taper we may-not taper' bs also I would be more concerned with China and of course Japan. imo those two countries are the most dangerous economically on the planet. Asia will set off the next crisis.

Chump there are two things I have come to believe in with absolute certainty. The fed is never, ever going to reverse course, and when they are done there won't be a treasury market. The plan from the beginning was to buy it all and eliminate it.

That's true and I'll add if we do enter into a global war, and it's coming, the Fed will 100% buy up the whole debt market. Japan is very close to owning their whole market, I think they are give and take 10% out from monetizing the whole thing. I will say this much, it's actually heartbreaking that we allowed our system, as fraught as it was, to be taken over by central banks that are going to/have caused so much pain.

The most difficult part of this is understanding where this is going and at the same time being forced to watch it play out while everyone around you keeps rationalizing it. It can drive you batshit crazy, and sooner or later, drive you into insolvency.

Fonz - my point with all the Treasury shit is how patently wrong, simply ludicrous this whole "taper" is (and I was a liberal arts major/ imagine what a BS could do)...and yet somehow it's accepted as the eventual outcome...All I can guess is we are near the end of this charade because when the lies and propaganda are so easily proven wrong...not sure how long this can be hidden???

it's accepted as the eventual outcome by the msm and apparently here sometimes. At some point in the next year or so Yellen will allude to the fed as having considered the implications of continuing the purchases until the fed is the predominant owner of the treasury market. Santelli will have an anuresym (not sure i spelled that right) on air and be carried off in a stretcher while Liesman explains the positives of the scenario.

I'm throwing shit up again and again because I'm waiting for somebody to show me how I don't get it...how in some way this actually works...instead I get mantras and dogma and normalcy bias but no mathematical refutation...seems our system is so bought and paid for that no one that isn't terribly annoying (Schiff) can simply show how ridiculous these assumptions are and the resulting economic destruction.

These Fed prez are simply lying through their teeth...tapering and pulling away due to strong economics on the ground?!? They know soooo much better. Seriously criminal what games these people are playing but seems no more ramifications for them than for the US for floating funny money.

the insolvent students (or ex students) should organize a class action suit against the entire student loan scam industry. include the bankers, the fed and the college admissions. they could claim they were unfairly entrapped by a system that knew very well there would be no jobs available once they graduated, that these entities were systematically processing the student sheep for the slaughter. it would be great to see all these bloodsuckers called to the stand, one by one to answer to their greed.

They know if they can's keep the youngun's shackled to debt they're more likely to show up in DC demanding to know what's goin' on-and may even learn about their 2nd amnedment right in the process. so ladle on the debt

Instead of sitting on your asses and thinking of snarky comments to make - DO SOMETHING!

Now is the time to ACT. Two thousand architects and engineers have agreed that all three towers were brought down by Controlled Demolition on 9/11. Support them! Take action with them! It's all tied together, and the dumbass american public is on the verge of actually waking up to the bullshit. DO IT!

If they can buy Mortgage-backed securities, why not Student-Loan-backed securites, car-loan backed securities, Municipal Bonds, corporate bonds. Anything with an interest rate so they can continue to keep ZIRP and QE foh-evah!

Remember, just a few years ago it was "unthinkable" that the Fed would buy Federal Agencies or MBS securities and now? I suppose it could be payday loans next.

so Sallie Mae gets..."put in conservatorship" is it?...this time, those debts are "high powered money" however. that stuff has to be repaid or it comes out of your paycheck directly. interesting that the revolvers are spiking. could be the "house flipping" craze is peaking. everything else looks pretty good though. i still wouldn't be shorting treasuries because it sure looks like full blown currency wars are on the doorstep here. it would be ironic if a massive revaluation of the yuan is what precipitates the whole thing. again "gold got slammed" which if China were all "hunky dorry" would seem the opposite of what to expect given the dollar/yuan exchange rate.

The Fed is pleased as punch that student loan debt is skyrocketing. It's one of the only categories of debt that is growing and it's propping up the economy. They have no notion to stop that growth. There is also no evidence that a small taper would impact student loan growth at all. Come on, Man!

If you drill down further you'll find it's not only young people piling up the debt. There are quite a number of middle aged people who have returned back to school in hopes of finding a job in another field away from segments which will never return. They're also using it for living expenses because they can't find a job. Trying to keep their head above water for another day.

They might pound the Sallie to treasury spread down to zero but it wouldn't take jack shit to make that happen. Treasury rates going up and sallie bonds being bought by the fed means no spread at all in which case the fed would have to buy them all because investors would dump for Ts, which they will to avoid the headache of collecting the deadbeat portion from the deadbeat usa gubbermint if there were no premium. The fed will simultaneously INCREASE treasury buying as well as begin Sallie bond buying (from jamie the gangsta of course). Mark my words.

dudley is the most out of touch of all of them. he is real goldmine partner status, probably richer than all hell, much more than the poor pure academics like bennie boy. and i promise you one thing. think about this. 20+ years in the goldmine. who are his friends, mentors and peers? when he goes to dinner, who does he go with? when he has a question, who does he talk to? sheila bair? brian moynihan? no - lloyd. and lloyd tells him what to do. because he's a shill. he was 'chief economist' at goldmine and that screams on thing - shill.

The William Dudley, "out of touch". Hardly. He is front and center, not only at the NY FED, but at the BIS. Blankfein probably takes his orders from this guy, not the other way around. The Central Banker of all Central Banks.

"In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He is a member of the board of directors of the BIS and a vice chairman of the Economic Club of New York."

mr. bay of pigs - maybe. but it's pretty simple. dudley makes $500,000/year and lloyd boy make $35,000,000. just that simple. really is. dudley wants the 35 million, believe me. he couldn't cut it. he did the best for himself that he could.

it's not the same as bernake. bernake never did wall street, he sees himself as better than that. he settles for the 500k. dudley was in the game competing for the top job.

Like I said in previous articles, the Fed will be monetizing student loan debt. Then instead of "taper now?", we get to see the Fed diversify their $4+ trillion portfolio with loans taken out by people to major in underwater basket weaving.

D#ckheads all of them. Clueless about the real world, they regurgitate the obvious, non-committal and fickle. Why does anybody listen to them. The world would be a better place without them. Case closed.

the real question here is not whether the Fed is going to "taper". anybody wih any sense knows that there is no way that will happen. the real question is: has TD simply lost his mind or is he being paid or blackmailed to stridently regurgitate this obvious propaganda? meanwhile I'll stick with Marc Faber and a whole host of other pundits and commentators who suggest that not only are they not going to taper, but that they are going to open up the floodgates on QE. wasn't it Dudley who just suggested a couple of days ago that a trillion would be needed in 2014? or is it just my imagination? i guess that in an economic environment bereft of anything tangible or fundamental where mere suggestions, possibilities, and hints at fiscal and monetary policy by obvious lunatics suffice to drive markets, then you can believe in anything and everthing and all at once.one way or another TD seems to have finally succumbed to the insupportable strain of the prevailing dissociation. get some rest. things will be better in the morning. or not.

Unfortunately college today has become a Fortress of Ultimate Darkness, and all who attend it are led to believe that a degree is "The Most Fabulous Object in the World". It is criminal to con students a degree is a guarantee for a well paying job. Even in my profession where there are jobs, the amount of student debt required for the degree and internship is staggering. Youth today would be far better off working for someone under the table for cash, learning a trade and thus avoiding debt and wage slavery altogether.

Ditto. Hmmm, I think I'll go back to school to finish my masters and then on to a doctorate. I'll be at least 60-62 by the time I finish. Sounds like a plan, since I'll be at such a productive age by the time I finish. Yeah, let's do it. And, I won't even have to pay it back! Works for me!

If anybody hasn't noticed Bernanke and Obama aren't buddies and BB is p.o.'d that Washington isn't doing their part by increasing spending and taking the burden off the Fed. I fully expect Bernanke to taper before he steps down which may force Congress to actively begin participating in pro-growth strategies. We all know there are no easy answers but Congress has relied much too heavily on the Fed and something has to give.

The deficit was reported 680B, but only because the special measures Treasury was taking to address debt ceiling issues were delayed past the debt ceiling fight. When that ended, a huge expenditure was made in October -- just past the Sept 30 FY deadline.

So the actual deficit was likely 750-850 Billion. With GDP growth sub 2% in the upcoming year, tax revenues won't rise. The Sequester is set to reduce spending only 20B in FY2014.

So . . . 1) Who says deficits will fall and 2) Only half of the present 85B/month goes to Treasuries. That's $480B. There is NO WAY IN HELL the deficit will be that low this FY.

So this entire rationale for taper is invalid. Besides which, if the Fed wanted to continue injecting $85B and there were only $10B in Treasuries issued, what's to stop them from overpaying the Primary Dealer a factor of 4 for those bonds?

I'm calling BS. Started picking at TLT today. This shit wagon cannot handle higher rates. But just in case I am reserving for lower metal prices if rates do go up much more. It is all so deflationary. The credit markets are too big. These bastards do not control rates. They are bluffing. They know that if rates drop just after they announce tapering - which they will - the jig is up.

I intend to game it all the way to hell.

All of the rats will soon be abandoning the sinking ship. Drown fuckers, drown.

I have said repeatedly, at every hint of taper, that there will be no taper now or ever. The Fed will not monetize student loans, as it is implicitly doing so in its purchase of U.S. Treasuries. The next asset class to be monetized will be municipal bonds. Go to the bank (or go diving for your capsized boat losses) and bet everything, even the farm on it. Thank you for your participation in the obvious.

Thank you Uncle Sam for making yet another generation of indentured servants who are studying geology on the taxpayers' dime, who will never get a job, who are up to their neck in debt, but at least can afford a Chevy Silverado.

I still believe that for the elitist globalist schmucks, the failure of the Fed, the dollar and America (probably via war) are all critical elements of putting together their global government and global financial system ... all of course run by THEM. To me it is not so much a question of whether a global government is best for the human race and this planet or not, it is in the legitimacy of a so called ruling class that is inbred psychopathic and has been the instigator of everything that is wrong, immoral and evil with the management of this planet for all of known history. They lie. They cheat. They steal. The murder. They rape. They pillage. They have no moral or ethical conscience whatsoever. They are a plague on humanity and whatever pleases them without consideration for others.

... and yet, it is how people are tested. Can we be corrupted by them? Do we break under oppression from them? Can we be strong, true and good when they are trying their best to break us? The question is then, do we "need" them and their force fed dialectic to grow and progress?

My own personal preference would have been to not have all of the ancient libraries destroyed by their type and for us to be able to grow and understand in an open and honest educational environment. But that is not how the fourth age, chaos, works, is it?